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How Can Activity Based Costing Benefit Companies?

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I need a 3 to 4 page paper describing how Activity Based Costing can benefit companies. You may wish to give an example of a company where activity based costing could be applied. Describe in detail how this company could benefit from Activity based costing.

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Solution Summary

Activity Based Costing (ABC) is a modern accounting system which segregates expenses (overheads) based on specific functions and then allocated the cost among individual items based on volume of activity. Activity based costing is an accounting concept and it just a method to allocate overhead among various product or services to determine the cost accurately and this process does not eliminate any cost.
Answer explained with example.

Solution provided by:
Sonia Agarwal, CA
Education
  • Chartered Accountant (Equivalent to CPA in US), Institute of Charted Accountants of India
  • Bachelor of Commerce, West Bengal University
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